When you think of student loan debt, you likely think of the financial stress on your youngest employees. While much focus has been on millennials, student loan debt impacts all generations and can have a long-term impact on retirement security. Some employers are offering a student loan repayment benefit as an attraction and retention tool for a college-educated workforce.
In September, PricewaterhouseCoopers (PwC) announced associate- and senior associate-level employees will become eligible for student loan repayment of $1,200 per year for up to six years. Michael Fenlon, global talent director for PwC, told the Washington Post the firm added the student loan repayment benefit for a variety of reasons: to stand out in the competition for top talent, boost PwC financial literacy initiatives and address a major issue for young people and their parents, including the inability to save for retirement.
Nearly 80% of the student loan holders surveyed by Iontuition, Inc. said they would like to work for a company that offers a loan repayment match, and repayment assistance was valued as much as major parts of the total compensation package—health care and 401(k) plans.
Andrew R. McIlvaine wrote a helpful piece on Human Resource Executive Online about young employees. Here’s more detail on the impact of student loan debt on all generations.
Student loan impact by generation
Millennials
Analysis of the class of 2015 by Edvisors finds about 71% will graduate with student loans, averaging a balance of $35,000. The Investor Protection Institute College Debt/Retirement Bind found 34% of respondents said that, as a result of college debt, they were not able to save for retirement at all or as much as they want. Similarly, Schwab’s survey of 401(k) plan participants found 37% can’t set aside more money for retirement because of student loan payments.
Generation X
According to the Pew Charitable Trusts report, “The Complex Story of American Debt,” one-quarter of Gen Xers have student debt and typically owe $20,000, reducing their ability to save for their children’s education. See more details in Josh Boak’s article titled “A Multigenerational Hit: Student Debt Traps Parents and Kids.” Student debt adds to financial stress. The Pew Research Center found young households (under 40) that borrowed for college feel less satisfied with their personal financial situation than those that didn’t and are less likely to say their education has paid off.
Baby Boomers
Only 4% of people 60 and over have student loan debt according to the Urban Institute, but the default rate is higher for older borrowers. The GAO found 27% of loans held by individuals 65 to 74 were in default, and more than half of loans held by individuals 75 or older were in default.
Some retirees may have student loan debt because during the recession, older workers returned to school and switched careers. The GAO found for those aged 65-74, 82% of the outstanding student loan balances funded the individual’s own education.
[Related: Employee Benefits by Generation | Benefit Bits Video]
Federal student loan default can follow Boomers into retirement with Social Security garnishment. This caught the attention of lawmakers who introduced The Stop Social Security Garnishment for Student Debt Act to reverse a 1996 law that permits the garnishment the Social Security benefits to pay for outstanding federal student loans.
Taxation
Employer payments toward student loans are taxable income to the employee. A recently introduced bipartisan bill, The Employer Participation in Student Loan Assistance Act would allow employees to repay student loans pretax. The bill also provides incentives for employers to subsidize student loan repayments up to $5,250, the same level allowed for tax-free tuition reimbursement.
[Related: Help your employees take control of their finances—Money Matters: Your Budget.]
Should your organization consider this emerging benefit?
As student loan debt continues to rise, we’re learning more about its impact on retirement security. Forty-three million Americans have borrowed for education, with balances totaling $1.2 trillion, measured by the Federal Reserve Bank of New York. Time will tell whether more employers see student loan repayment as an employee benefit worth offering in the total compensation package.
Jenny Lucey, CEBS
Information/Research Specialist at the International Foundation
